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Islamic bonds have expanded their geographic footprint after a British manufacturer became the first company to raise money through a sukuk in the UK, which has until now, largely been the domain of the Middle Eastern and Asian countries.

International Innovative Technologies, a maker of industrial mills, raised $10m through a private equity sukuk to help finance its growth plans. The bonds, which pay 10% and expire in 2014, were bought by Dubai-based Millennium Private Equity and will be listed on the Cayman Islands Stock Exchange.

Farmida Bi, the Norton Rose partner who worked on the transaction, said: “This is a significant step forward for sukuk and for any UK company looking for alternative forms of investment.

“In other jurisdictions, we’ve acted on a number of high profile sukuk, but there has been no UK corporate or sovereign sukuk to date. The result has been a potentially significant source of investment into the UK being essentially cut off. However, this deal proves that sukuk can work to great effect in the UK.”

Massoud Janekeh, head of Islamic capital markets for BLME, Europe’s largest Islamic bank, told Financial News the sukuk demonstrated that such instruments could be applied within the UK’s legislative framework and further highlighted the possibilities of tapping into the Islamic market to other potential UK issuers.

He added that while plans for a sovereign sukuk under the previous government had been interrupted by the global financial crisis, the Treasury Islamic working group had assured BLME that issuance remained on their agenda.

Islamic bonds are usually tied to tangible assets or in this instance, a business venture. In this type of sukuk, known as musharaka, parties contribute capital to the venture with profits and losses shared in a pre-arranged manner.

Islamic finance was hailed as a more secure form of capital before the financial crisis both because of its link to underlying assets as well as a wider ban on speculation. But the industry suffered a blow after the debt-laden Dubai World defaulted on its interest payments in November 2009. Although global sukuk issuance has picked up this year, the rebound has been limited to Middle Eastern and Asian countries and still falls short of pre-credit crunch levels.

In February, the UK government paved the way for Islamic bonds after it passed the Financial Services and Markets Act 2000 Order 2010, which reduced the legal costs for sukuk and removed unnecessary obstacles to their issuance.

But despite being a centre of Islamic finance, sukuk are yet to get off the ground in the UK. In July, British travel company Thomas Cook failed to place a $50m bond offering.

Prior to this sukuk, the only other in Europe was a five-year €100m bond issued by the German state of Saxony-Anhalt in 2004 through a special purpose vehicle, the Stichting Sachsen-Anhalt Trust.

Global sukuk issuance was $13.7bn in the first half of 2010, almost twice that of the same period last year, according Norton Rose. Malaysia has topped the league tables for issuance for the past four years and raised $4.9bn year-to-date through 33 deals, according to Dealogic, followed by Saudi Arabia and the United Arab Emirates.